Monthly Income Picks

Answering a Question

Some of my readers ask me questions. That is helpful to me as a writer and teacher. It makes it possible for me to think about how others might benefit from the answers I provide. One reader asked a couple of good questions regarding my recent post, “Comparing Dividend-Focused ETFs.” I responded via email, prompting some additional questions. One wise question started by noting that many of the stocks I have written about are in the ETFs I hold and recommend (SCHD, VYM , DGRO, VIG, and DVY). The question was essentially, “Why not just hold the ETF’s if they already contain many of your stock recommendations?” (I responded to that question with five reasons. That will be the subject of a future post.) This article is focused on his follow-up question: “Do you have a spreadsheet or a list of monthly dividend paying stocks? if you do, please share it.”

Monthly Dividends from ETFs, REITs, and BDCs

There are ten different investments that pay a monthly dividend in our portfolio. Three of them are ETFs: PFF, SHYG, and VCLT. Four of them are REITs: LAND, LTC, O, and STAG. The balance are finance or BDC (Business Development Company) investments: GAIN, HRZN, and MAIN. The following figure shows these investments, sorted by the one with the most dollars invested to the least. These investments provide $1,770 in income every month or over $21,000 per year. This assumes, of course, that none of these investment increase or decrease their dividend payment.

REITS: First Word of Caution

Most of these holdings are in our ROTH or traditional IRA accounts. Because of the way REITs are taxed, you might not want to hold too many REITs in your taxable accounts. Their dividends are taxed as ordinary income and not at the qualified dividend tax rate. This may or may not impact you significantly. It depends on your tax bracket as to the potential impact on your income taxes. “Most stock dividends meet the IRS definition of “qualified dividends,” so they get lower long-term capital gains tax rates. Most REIT dividends don’t qualify. So the majority of REIT distributions are classified as ordinary income, which is taxable at your marginal tax rate.” – http://www.fool.com

Additional REIT Cautions

Not all REITs are created equally. It pays to understand the type of investment. For example, STAG is focused on industrial real estate and warehouses, so they boom when their customers, like Amazon, are booming. Some REITs for strip malls or large regional malls might be poor long-term investments. I always check the REITNOTES ReitRating™ when buying REIT investments. I want the score to be at least 7.0. The following image shows the recent  ReitRating™ for all of the REITS in our portfolio. Most of them pay a quarterly dividend.

BDC Cautions

BDCs are not for the faint-hearted. During the Covid-19 pandemic panic, most BDC’s experienced a significant drop in their share price. Because I have a good understanding of BDCs, this did not cause any panic for me. However, novice investors were probably terrified and sold their shares. Nevertheless, GAIN, MAIN, and HRZN are a higher risk investment. They are not for the novice investor and can quickly lose value on any given day. Also bear in mind that BDCs are not necessarily dividend growth investments.

The Big Picture for Perspective

The following image shows all of the investments and the dollar values of each investment. Bear in mind that these are small segment of our overall invested dollars. To put the total in perspective, we have $158,000 invested in ETF VYM. We have $186,000 invested in pharmaceutical companies: ABBV, GILD, MRK, and PFE. Those two subsets of our investment portfolio are over $344,000 of invested dollars. Therefore, $334,000 in monthly dividend paying stocks and ETFs is not a huge number in our total strategy for dividend income.

Full Disclosure

All of the investments mentioned above show the number of shares we own in the attached tables. I do not recommend any of these investments for the novice investor.